With the ink barely dry on the federal tax bill signed into law by President Trump, real-estate investment advisers are still grappling with its wide-ranging provisions.

The new law caps mortgage interest deductions, cuts taxes on pass-through entities, lowers corporate taxes and limits local deductions.

It will take time for many of the law’s effects to become clear, some observers said.

“The worst thing is we won’t really know the results until two, three, four years down the line,” said Sam Rodriguez, senior managing director of Mill Creek Residential Trust, a major multifamily developer.

Perhaps most significantly, the law includes a 20 percent deduction for pass-through entities such as limited liability companies, which developers often use to do business.

After taking into account the deduction, the beneficiary of a pass-through entity may pay a top effective rate of only 29.6 percent, said Michael Lortz, a shareholder at Portland accounting firm Geffen Mesher.

“This has the potential to make the after-tax returns on real estate significantly better than they were before,” he said.

The tax deduction does not apply to C corporations.

The law also doubles the bonus for depreciation expenses to 100 percent. That means a landlord could potentially write off the entire cost of a tenant improvement.

“That’s exciting for many of my clients that own a lot of commercial office rental properties,” Lortz said.

The provision also applies to apartment building improvements. The downside is the law can limit interest deductions if they exceed 30 percent of adjusted taxable income. Property owners can opt out of that limit, but in exchange, landlords must forgo the depreciation bonus.

One of the key aspects of the law is what it does not do, industry experts said. In the end, lawmakers left in place 1031 exchanges for real estate, but not other types of transactions. The law continues to allow property investors to sell one real-estate asset and purchase a similar property without paying taxes on the income.

“One of the best things about the bill for real-estate investors is that it retained the ability to do like-kind exchanges with respect to real estate,” said Kevin Pearson, a Portland-based Stoel Rives partner who specializes in federal tax law. “That was a really big deal for the real-estate industry and they’re happy to have retained that.”

Without 1031s, the pace of real-estate transactions would likely slow as property owners would have less incentive to buy and sell properties.

Pearson said he doesn’t expect a rush of clients converting to pass-through entities.

“All of our clients who have real estate investments are pass-throughs,” Pearson said. “Long before this new act, there have been a lot of good reasons to be a pass-through rather than a C corporation. I don’t think this (law) is going to change behavior as much as this is going to provide a tax benefit for behavior that’s already been encouraged.”

Trump signed the tax law into effect on Dec. 22. Republicans in Congress forged the bill behind closed doors and held no public hearings, and expert analysis was scant before the bill’s passage. As a result, tax attorneys, real-estate professionals and others have scrambled to untangle the far-reaching law.

“This all happened so quickly,” Pearson said. “Even though it’s in effect, a lot of people are still digesting it.”

The mortgage-interest deduction is now capped at $750,000 – a change that will likely cause some ripples in the luxury residential real-estate market.

The new cap may cause some luxury buyers to forgo a mortgage if they’re able to pay cash, said Mimi McCaslin, a Lake Oswego-based real-estate agent for Luxe Platinum Properties and Christie’s International Real Estate.

Still, luxury buyers have been buoyed by cuts to the corporate income tax rate and stocks’ strong performance in recent months, McCaslin said.

“We feel the economy still has wind at our back,” she said.

The law caps the deduction for local and state taxes at $10,000, a feature that hits relatively high-tax states including Oregon. That may put less money in the pockets of average buyers.

Many wealthy property investors also stand to benefit from the estate-tax exemption doubling. In 2018, the first $11.2 million from an estate will be exempt from taxes, up from $5.6 million under the old rules.

Overall, the changes in tax law benefit developers while reducing the preferential treatment of homeownership.

“The standard homeowner is the one who gets most of the bad provisions, and developers and investors get the most good,” Pearson said.

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The Architecture Foundation of Oregon has added three people to its board of directors: Mark Peckover, a principal with Stantec; Barbara Clement, an associate partner with FFA Architecture and Interiors; and Brian K. Annand, a shareholder with Geffen Mesher.

“Mark has been serving on the finance and resource committee, and everyone recognized he is a great asset,” AFO Executive Director Jane Jarrett said. “With Brian, it is very important for us to have someone on the board who has experience in financial practices.”

Clement is returning to AFO’s board after previously serving in 2004.

AFO’s goal is for its board to feature a diverse group. A governance committee chooses its board of directors.

“We try to have not more than one-third of the board (be) architects,” Jarrett said. “We have engineers and marketing persons on the board and others. We want a variety of talents and perspectives.”

The goal of the foundation is to support Oregon’s quality of life and create awareness of designed environments.

AFO was started in 1981 by five firms: BOORA (now Bora) Architects, Skidmore, Owings & Merrill, SRG Partnership, Yost Grube Hall Architecture and Zimmer Gunsul Frasca Architects.

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